Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.
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If I was forced to squeeze my trading philosophy into a single sentence, it would be:
Anticipating future price moves by studying the news and interpreting the market's reaction to those headlines.
In overly simplified terms, I follow the news, watch how the market responds to those headlines, and make swing-trading decisions based on the market's mood. A resilient market tells us to buy the dips, a non-committal market means we buy weakness and sell strength, and a skittish market means we short the bounces.
The market frequently confuses people with its often paradoxical and counterintuitive reactions to bullish and bearish headlines. People automatically jump to the conclusion "the market is rigged" when it does the opposite of what they expect by going down on good news or up on bad news. The problem is these people are overly fixated on whether the news is good or bad. Critically, they are missing the more important, what does the market think about this good or bad news. After all, it doesn't matter what we think, only what the market thinks when it comes to counting our profits and losses.
The market's reaction to bullish or bearish headlines reveals what mood it is in:
And more than just looking at bullish or bearish headlines, I fear what I don't know, not what everyone is talking about. If the latest round of headlines is simply recycling old news, most of the time we can safely ignore it because anyone who feared those headlines sold the first or second time this came up. By the time we get to the third and fourth round, there are so few people left to sell that it stops mattering. And most important when trading, when bad news doesn't matter to the market, then it doesn't matter to us.
The above contradictory situations also lead to one of the most dangerous traps in trading. Few things are more costly than arguing with the market. This happens when the market refuses to react in a way that seems rational or logical to us. Too often, traders assume the market is wrong and feel compelled to trade against it. Unfortunately, the market is far larger than we are and will simply run us over. If you don't agree with the market, it means you are wrong. Get over it and move on. End of story.
By nature I'm contrarian and that works especially well in the above situations when the crowd disagrees with the market's reaction. Everyone loves to talk about what the market is doing, but I actually find it far more insightful to look at what it is not doing. For example, there are few things more bullish than a market that refuses to go down on bad news and few things scarier than a market that cannot rally on good news. Those are the huge trading signals that can easily turn into the best trades of the year.
Knowing when the market is resilient, indifferent, or skittish only gives us half of the information required to make a savvy trade. I also incorporate basic technical analysis of support, resistance, and trend lines to give me a full-understanding of where the biggest risks and greatest opportunities lie. The identical signal at the lower end of a trading range means something completely different than if it happens at the upper end. Sometimes we ignore certain signals after a large pullback and prices are oversold. Other times we assume the risks are unreasonably high at the upper end of a range and we wait for confirmation before taking the plunge.
The above is an overly simplified explanation of the way I analyze the market and trade. Remember, if this was simple, everyone would be rich and clearly that is not the case. This is just the starting point of a multi-year journey to learning how to beat the markets. There are a million different ways to trade profitably. This way works for me and I'd love to be able to teach it to you.